Are your property taxes still deductible in California?
The GOP tax reform bill signed into law by President Trump on December 22 made changes to the deductibility of your property taxes paid here in California.
If you are the owner of a rental property, whether commercial or residential, you may still take a full tax deduction for the amount of property taxes you pay related to that property during a calendar year. If the rental property is held in an LLC, Partnership, Corporation, or Trust, you will still get a full deduction for the taxes paid on that property.
The major change is for property taxes paid on your primary residence and second homes. Prior to the passing of the law, you were allowed a full State and Local Tax Deduction on Schedule A Itemized Deductions. This deduction includes State Income Taxes paid, as well as property taxes paid. This is usually a significant itemized deduction for California homeowners since property taxes paid on your home, as well as income tax payments to the state, generally will add up to a significant number.
The tax reform bill limits the State and Local Tax Deduction on your personal tax return to $10,000 ($5,000 for a married taxpayer filing a separate return). Since it is common for California homeowners to pay nearly, or in excess of, $10,000 of California state taxes alone, there will be little to no tax benefit associated with paying property taxes on your primary and second home.
One way to estimate the impact of this limit to you is to look at your 2017 California tax return and determine your total state income tax liability. If your tax liability is $10,000 or more (and you expect a consistent level of income) you essentially will get no tax benefit for property taxes paid. If you pay less than $10,000 of California tax, your property tax deduction will be the difference between $10,000 and your state income tax liability. Let’s say for example you had a California personal income tax liability of $7,000 last year (and you expect a similar liability in 2018), and you paid $8,000 of property taxes on your home. You will only receive a tax deduction of $3,000 associated with your property tax payments of $8,000.
Contact RPC Property Tax Advisors, LLC for a free property tax review
Darren L. De Vries is a tax professional practicing in San Diego, California. He holds both Certified Public Accountant and Enrolled Agent Licenses. He specializes in individual and small business tax consulting, emphasizing the maximization of tax deferral strategies. His mission is to help his clients defer tax and retire wealthy.